Chesapeake Energy Corporation Reports 2019 Full Year And Fourth Quarter Financial And Operational Results And Releases 2020 Guidance

OKLAHOMA CITY, Feb. 26, 2020 /PRNewswire/ -- Chesapeake Energy Corporation (NYSE:CHK) today reported financial and operational results for the 2019 full year and fourth quarter and released its annual guidance. Highlights from Chesapeake's projected 2020 program include:

• Targeting Free Cash Flow
• Reducing Capital Expenditure Budget by Approximately 30%, Maintaining Relatively Flat Oil Production and Decreasing Gas Production Year Over Year
• Lowering Projected Production and General and Administrative (G&A) Expenses by Over 10% Year Over Year
• Continuing to Recognize Capital Efficiency Improvements Across All Basins
• Funding 2020 Maturities and Enhancing Liquidity Through $300 to $500 Million in Expected Non-Core Asset Sales

Doug Lawler, Chesapeake's President and Chief Executive Officer, commented, "We are pleased to highlight our strong 2019 operational performance, delivering fourth quarter oil production of 126,000 barrels (bbls) of oil per day and increasing our oil mix to 26% of total production, the highest percentage in company history. These results, combined with certain lower cash costs, yielded adjusted EBITDAX growth of 19%, or 15% per barrel of oil equivalent (boe), compared to the 2018 fourth quarter, when we had significantly higher commodity prices. Our focus on shifting our portfolio composition and capital allocation to more oil and our commitment to cost leadership are resulting in improved financial performance, even at lower prices. We also made additional progress improving our balance sheet during the quarter, eliminating approximately $900 million in debt through capital markets transactions, and consolidating our $1.5 billion Brazos Valley unrestricted subsidiary.

"Our performance in 2019 positions us to target free cash flow in 2020. We plan to allocate approximately 80% of our projected 2020 capital expenditure program of $1.3 to $1.6 billion to our highest-margin oil opportunities. We expect oil production will remain relatively flat year over year, while total production is projected to decrease as gas volumes decline. In addition to cutting our 2020 capital program by approximately 30% compared to 2019, we expect to further improve our cost structure by reducing production and G&A expenses by over 10% year over year. We also plan to further enhance our liquidity by funding our 2020 maturities with $300 to $500 million in proceeds from expected non-core asset sales. We remain fully committed to strengthening our company in 2020 by achieving free cash flow, improving well productivity and capturing further cash costs savings."

2019 Full Year Results

For the 2019 full year, Chesapeake reported a net loss of $308 million and a net loss available to common stockholders of $416 million, or $0.25 per diluted share, compared to net income of $228 million and net income available to common stockholders of $133 million, or $0.15 per diluted share, in 2018.  Adjusting for items that are typically excluded by securities analysts, the 2019 full year adjusted net loss attributable to Chesapeake was $454 million, or $0.27 per diluted share, compared to an adjusted net loss attributable to Chesapeake of $140 million, or $0.15 per diluted share in 2018, while the company's adjusted EBITDAX was $2.530 billion, compared to $2.380 billion in 2018. Reconciliations of financial measures calculated in accordance with GAAP to non-GAAP measures are provided on pages 13 - 17 of this release.

Average daily production for 2019 was approximately 484,000 boe and consisted of approximately 118,000 bbls of oil, 1.995 billion cubic feet (bcf) of natural gas and 33,000 bbls of natural gas liquids (NGL). Average daily production for 2018 was approximately 521,000 boe and consisted of approximately 90,000 bbls of oil, 2.278 bcf of natural gas and 52,000 bbls of NGL. The increase in oil production of approximately 30% during 2019 was primarily driven by the WildHorse acquisition, while our legacy oil portfolio contributed 6% growth excluding acquisitions and divestitures.

In 2019, gathering, processing and transportation (GP&T) expenses were $6.13 per boe compared to $7.35 per boe in 2018. Production expenses in 2019 were $2.94 per boe compared to $2.50 per boe in 2018. This decrease in GP&T and increase in production expenses were primarily driven by the divestiture of the company's Utica Shale properties in Ohio in 2018 and the 2019 acquisition of WildHorse, respectively. On a per boe basis, these combined expense categories decreased 8% year over year. G&A expenses (including stock-based compensation) were $1.78 per boe in 2019, compared to $1.76 per boe in 2018.

2019 Fourth Quarter Results

For the 2019 fourth quarter, Chesapeake reported a net loss of $324 million and a net loss available to common stockholders of $346 million, or $0.18 per diluted share, compared to net income of $605 million and net income available to common stockholders of $576 million, or $0.57 per diluted share, for the fourth quarter 2018. Adjusting for items typically excluded by securities analysts, the 2019 fourth quarter adjusted net loss attributable to Chesapeake was $80 million, or $0.04 per share, while adjusted EBITDAX was $665 million.  For the 2018 fourth quarter, adjusted net income attributable to Chesapeake was $32 million, while adjusted EBITDAX was $561 million. Reconciliations of financial measures calculated in accordance with GAAP to non-GAAP measures are provided on pages 13 - 17 of this release.

Average daily production for the 2019 fourth quarter was approximately 477,000 boe and consisted of approximately 126,000 bbls of oil, 1.935 bcf of natural gas and 29,000 bbls of NGL. Average daily production for the 2018 fourth quarter was approximately 464,000 boe and consisted of approximately 87,000 bbls of oil, 2.009 bcf of natural gas and 42,000 bbls of NGL. Overall, fourth quarter oil production grew approximately 45% from the 2018 fourth quarter, and represented approximately 26% of the company's total production, the highest oil mix in Chesapeake's history, compared to 19% in the 2018 fourth quarter.

Despite lower average prices for its oil, natural gas and NGL production, Chesapeake's operating margin increased in the 2019 fourth quarter compared to the 2018 fourth quarter, due to an increase in oil production mix and a decrease in certain cash costs. GP&T and G&A expenses decreased by $76 million, or approximately $2.00 per boe, while production expense increased $21 million, or $0.38 per boe, as compared to the same quarter in 2018.

Capital Spending Overview

Chesapeake invested total capital expenditures of approximately $487 million during the 2019 fourth quarter, including capitalized interest of $6 million, compared to approximately $476 million in the 2018 fourth quarter. For 2020, the company's projected capital expenditure program is $1.3 to $1.6 billion, compared to $2.245 billion in 2019, with approximately 80% expected to be allocated to higher-margin oil opportunities. See tables below for a summary of 2019 fourth quarter and full year activity and expenditures.

Balance Sheet and Liquidity

As of December 31, 2019, Chesapeake's principal amount of debt outstanding was approximately $8.916 billion, compared to $8.168 billion as of December 31, 2018. As of December 31, 2019, the company had borrowed $1.590 billion under the $3.0 billion Chesapeake credit facility, utilized approximately $59 million for various letters of credit and had additional borrowing capacity of approximately $1.351 billion. The borrowing base of the Chesapeake credit facility was re-affirmed in November 2019.

In December 2019, Chesapeake entered into a secured 4.5-year term loan facility for $1.5 billion to finance a tender offer for unsecured notes issued by Brazos Valley and Brazos Valley Longhorn Finance Corp., each a wholly owned subsidiary of Chesapeake, and to fund the retirement of Brazos Valley's secured revolving credit facility. The company also exchanged new 11.5% Senior Secured Second Lien Notes due 2025 for certain outstanding senior unsecured notes. These transactions eliminated essentially all Brazos Valley unrestricted subsidiary debt and approximately $900 million in principal amount of debt from the company's balance sheet.

As of February 26, 2020, including January and February derivative contracts that have settled, approximately 70% of the company's 2020 forecasted oil, natural gas and NGL production revenue was hedged. The company had approximately 76% downside oil price protection through swaps and collars at an average price of $59.90 per bbl. The company had 39% downside gas price protection through swaps at $2.76 per mcf and 14% under put spread arrangements based on an average bought put NYMEX price of $2.05 per mcf and exposure below an average sold put NYMEX price of $1.80 per mcf.

Operations Update and Highlights

The following tables show average daily production and average sales prices received (excluding gains/losses on derivatives) by the company's operating areas for the 2019 and 2018 fourth quarters.

In Chesapeake's Brazos Valley area in central Texas, the company placed 81 wells on production during 2019 while utilizing four rigs after the company closed the WildHorse acquisition on February 1, 2019. Currently, the company is operating three drilling rigs and expects to utilize two to three rigs throughout the year, resulting in 55 to 65 wells expected to be placed on production in 2020.

In the company's South Texas Eagle Ford asset, the company placed 141 wells on production in 2019 while utilizing four rigs. The company is currently operating four drilling rigs and expects to utilize three to four rigs throughout the year, resulting in 110 to 120 wells expected to be placed on production in 2020.

In the Powder River Basin in Wyoming, the company placed 72 wells on production in 2019 while utilizing an average of five rigs. The company is currently operating three drilling rigs and expects to move to two rigs in the area in the 2020 first quarter, resulting in 25 to 30 wells expected to be placed on production.

In the Marcellus Shale in northeast Pennsylvania, the company placed 44 wells on production in 2019 while utilizing an average of two rigs. The company is currently operating three drilling rigs and expects to utilize two to three rigs throughout the year, resulting in 50 to 55 wells expected to be placed on production.

In the Haynesville Shale in Louisiana, Chesapeake placed 24 wells on production during 2019 utilizing an average of one rig. The company is currently operating one rig in the area and expects to utilize that rig through the end of the 2020 first quarter, with five to ten wells projected to be placed on production during 2020. In the Mid-Continent area in Oklahoma, the company placed 13 wells on production during 2019 and expects 10 to 15 wells targeting the Oswego formation to be placed on production in 2020. Overall, while Chesapeake intends to focus the vast majority of its 2020 capital on its highest-margin opportunities, the breadth and depth of its diverse portfolio affords the company the opportunity to react to changing market conditions while staying within the framework of its proposed $1.3 to $1.6 billion capital program.

Key Financial and Operational Results

The table below summarizes Chesapeake's key financial and operational results during the 2019 fourth quarter and full year as compared to results in prior periods. The year ended December 31, 2019 includes Brazos Valley operations. The year ended December 31, 2018 does not include Brazos Valley operations.

2019 Fourth Quarter and Year End Results Conference Call Information

The conference call to discuss the company's financial and operational results has been scheduled on Wednesday, February 26, 2020 at 9:00 am EST. The telephone number to access the conference call is 888-317-6003 or 412-317-6061 for international callers. The passcode for the call is 7266124. The conference call will be webcast and can be found at www.chk.com in the "Investors" section of the company's website.

Headquartered in Oklahoma City, Chesapeake Energy Corporation's (NYSE: CHK) operations are focused on discovering and developing its large and geographically diverse resource base of unconventional oil and natural gas assets onshore in the United States.

This news release and the accompanying outlook include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are statements other than statements of historical fact. They include statements that give our current expectations, management's outlook guidance or forecasts of future events, cost-cutting measures, reductions in expenditures, proposed refinancing transactions, capital exchange transactions, asset divestitures, reductions in capital expenditures, operational efficiencies, production and well connection forecasts, estimates of operating costs, anticipated capital and operational efficiencies, planned development drilling and expected drilling cost reductions, expected lateral lengths of wells, anticipated timing and number of wells to be placed into production, expected oil growth trajectory, projected capital expenditures, projected cash flow and liquidity, our ability to enhance our cash flow and financial flexibility, plans and objectives for future operations, the ability of our employees, portfolio strength and operational leadership to create long-term value, and the assumptions on which such statements are based. Although we believe the expectations and forecasts reflected in the forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. They can be affected by inaccurate or changed assumptions or by known or unknown risks and uncertainties.

Factors that could cause actual results to differ materially from expected results include those described under "Risk Factors" in Item 1A of our annual report on Form 10-K and any updates to those factors set forth in Chesapeake's subsequent quarterly reports on Form 10-Q or current reports on Form 8-K (available at http://www.chk.com/investors/sec-filings). These risk factors include our ability to comply with the covenants under our revolving credit facilities and other indebtedness, the volatility of oil, natural gas and NGL prices; the limitations our level of indebtedness may have on our financial flexibility; our inability to access the capital markets on favorable terms; the availability of cash flows from operations and other funds to finance reserve replacement costs or satisfy our debt obligations; downgrade in our credit rating requiring us to post more collateral under certain commercial arrangements; write-downs of our oil and natural gas asset carrying values due to low commodity prices; our ability to replace reserves and sustain production; uncertainties inherent in estimating quantities of oil, natural gas and NGL reserves and projecting future rates of production and the amount and timing of development expenditures; our ability to generate profits or achieve targeted results in drilling and well operations; leasehold terms expiring before production can be established; commodity derivative activities resulting in lower prices realized on oil, natural gas and NGL sales; the need to secure derivative liabilities and the inability of counterparties to satisfy their obligations; adverse developments or losses from pending or future litigation and regulatory proceedings, including royalty claims; charges incurred in response to market conditions and in connection with our ongoing actions to reduce financial leverage and complexity; drilling and operating risks and resulting liabilities; effects of environmental protection laws and regulation on our business; legislative and regulatory initiatives further regulating hydraulic fracturing; our need to secure adequate supplies of water for our drilling operations and to dispose of or recycle the water used; impacts of potential legislative and regulatory actions addressing climate change; federal and state tax proposals affecting our industry; potential OTC derivatives regulation limiting our ability to hedge against commodity price fluctuations; competition in the oil and gas exploration and production industry; a deterioration in general economic, business or industry conditions; negative public perceptions of our industry; limited control over properties we do not operate; pipeline and gathering system capacity constraints and transportation interruptions; terrorist activities and cyber-attacks adversely impacting our operations; an interruption in operations at our headquarters due to a catastrophic event; certain anti-takeover provisions that affect shareholder rights; and our inability to increase or maintain our liquidity through debt repurchases, capital exchanges, asset sales, joint ventures, farmouts or other means.

In addition, disclosures concerning the estimated contribution of derivative contracts to our future results of operations are based upon market information as of a specific date. These market prices are subject to significant volatility. Our production forecasts are also dependent upon many assumptions, including estimates of production decline rates from existing wells and the outcome of future drilling activity. Expected asset sales may not be completed in the time frame anticipated or at all. We caution you not to place undue reliance on our forward-looking statements, which speak only as of the date of this news release, and we undertake no obligation to update any of the information provided in this release or the accompanying Outlook, except as required by applicable law. In addition, this news release contains time-sensitive information that reflects management's best judgment only as of the date of this news release.

Oil, Natural Gas and Natural Gas Liquids Hedging Activities

Chesapeake enters into oil, natural gas and NGL derivative transactions in order to mitigate a portion of its exposure to adverse changes in market prices. Please see the quarterly reports on Form 10-Q and annual reports on Form 10-K filed by Chesapeake with the SEC for detailed information about derivative instruments the company uses, its quarter-end derivative positions and accounting for oil, natural gas and natural gas liquids derivatives.

As of February 19, 2020, including January and February derivative contracts that have settled, approximately 70% of the company's 2020 forecasted oil, natural gas and NGL production revenue was hedged. The company had approximately 76% downside oil price protection through swaps and collars at an average price of $59.90 per bbl. The company had 39% downside gas price protection through swaps at $2.76 per mcf and 14% under put spread arrangements based on an average bought put NYMEX price of $2.05 per mcf and exposure below an average sold put NYMEX price of $1.80 per mcf.

The company's crude oil hedging positions were as follows:

The company's natural gas hedging positions were as follows:

SOURCE Chesapeake Energy Corporation

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